CPE SESSION 15 - Wednesday, 8:00 AM - 12:00 PM

Continuous Auditing: Would It
Have Stopped the Enron Mess?

Description/Objectives:
This workshop aims at presenting the basic principles of continuous audit/assurance and examining if application of these principles would have been able to stop/avoid/decrease the severity of the Enron problem. It will also deal with insights that can be gathered towards changes in standards and the regulatory process, including auditing standards, financial statement standards, peers reviews, and new forms of oversight.

A well-performed continuous audit would certainly have much earlier brought to light the Enron operational problems, and across the value chain resource flow analytics identified resource discontinuities. While the facts on Enron are not yet clear, arguably a well-performed traditional audit would also have detected many of problems. The key difference would be on the timeliness of the problem detection (much sooner), the nature of the assurance provided (that can be the assurance of processes not necessarily of the eventual financial report), the nature of the assurance process (closer to secondary supervision than of ex-post facto archival review), and the audit technology used (heavy reliance on inter-process analytics, models of processes, and alarming).

This workshop aims at presenting the basic principles of continuous audit/assurance and examining if application of these principles would have been able to stop/avoid/decrease the severity of the Enron problem. The workshop will also deal with insights that can be gathered towards changes in standards and the regulatory process, including auditing standards, financial statement standards, peers reviews, and new forms of oversight.

The workshop also discusses some of the main axioms of e-reporting, the future of digital reporting, the role of XBRL in this process, and what companies can do to prepare for the e-measurement/e-reporting world. Some discussion of what academics should teach in this area is also included.

Format/Structure:
Outline

• Continuous Assurance 101
  The basic principles of continuous auditing, architectures, cases, and analytics
• Continuous reporting and XBRL, e-Measurement, and digital reporting
  Evolving towards different forms of digital reporting, the role of XML derivatives, and the role of new standards and regulations. Evolving voluntarily for improved transparency
• Would continuous auditing have stopped the Enron mess?
  Imagine that continuous monitoring and assurance methods were being used. What would have happened?
• Insights and ideas on a dramatic new audit model
  A new business model for the audit based on stakeholders and multiple-level reporting. Materiality, independence, analytics, etc.
• Proposed and effective regulatory changes. The role of corporate governance and new motivators.
  Congress has come alive with proposals, are these proposals and their rigidity effective? Are there alternatives to the current standard-setting process? Experimentation? Freedom of judgement. Free harbour? Are the FASB, ASC and SEC obsolete? Can they use continuous monitoring? Should they?

Intended Audience:
This presentation is aimed at educators interested in learning about continuous audit and reporting methodologies. The Enron discussion is aimed at creating focus on critical issues of the current regulatory and reporting model.

Presenters:
Miklos A. Vasarhelyi, Rutgers University
Alex Kogan, Rutgers University
Liv Watson, Edgar Online

Sponsor:
Artificial Intelligence/Emerging Technologies Section